KC Federal Reserve survey shows farmland markets cooling

After several years of huge increases, cropland value increases may be slowing and ranchland values may actually be declining, according to a survey of agricultural bankers conducted by the Federal Reserve Bank of Kansas City.

Compared to 2010-2012 when non-irrigated and irrigated cropland values increased between 6 and 7 percent respectively from the third to fourth quarter each year, cropland values increased only about 1 percent during the fourth quarter of 2013, according to the survey. Ranchland values, on the other hand, in the fourth quarter were lower than third quarter values. Further, 16 percent of survey respondents at the end of 2013 said they expect a decline in cropland values, compared to 1 percent responding that way a year earlier.

Just as farmland values increased in recent years, so too had cash rental rates. According to the survey, however, cash rental rates for cropland also stabilized in the final three months of 2013. Ranchland cash rental rates, especially for pastures that had recovered from drought, rose modestly, the bankers said. Strong demand from cow-calf producers wanting high-quality pastures supported the higher cash rental rates.

Bankers are also anticipating weak farm income in 2014 due to lower crop prices and high farm production costs, including seed prices which have doubled since 2007. Lower corn prices, however, translated to improved outlooks for the livestock sector. According to the Federal Reserve of Kansas City, since July 2013, feed costs have fallen 20 percent while fed cattle prices have increased 11 percent.

According to the survey, as the index of farm income fell in 2013, the index of demand for farm operating loans held at a five-year high in the fourth quarter. Many farmers had not yet sold fall crops but the need for access to capital for spring planting boosted short-term borrowing needs. The agricultural lenders noted in the survey that more than half of their farm customers also received credit from farm input and equipment suppliers. The average fixed interested rate on farm operating loans, according to the survey, has held below 6 percent for more than a year, and the average fixed interest rate for farm real estate was about 5.4 percent throughout 2013.

A total of 226 banks responded to the Fourth Quarter Survey of Agricultural Credit Conditions in the Tenth Federal Reserve District. The Tenth District covers Colorado, Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico and the western third of Missouri. For more information, visit www.kansascityfed.org.